Creeping mortgage rates are part of housing market’s soft landing

The reports of the demise of Canada's housing sector appear to have been greatly exaggerated. According to the Royal LePage House Price Survey, housing prices across the country continue to post relatively modest gains, and home loans have been kept in check, leading to market stability. And, defying those who had predicted an imminent collapse, it doesn't appear there will be any extreme price movement either way through at least the end of 2013 and probably into 2014.

Avoiding the housing bubble
Four different sets of rules have been issued by the Department of Finance since the worldwide housing bubble collapse in 2008, all of which increased lending restrictions. Those efforts, along with the creeping rise in mortgage rates over the past few months, appear to have helped the Canadian housing sector into a soft landing, avoiding any possible catastrophe.

"As we have stated consistently since the current market downturn began late in the second quarter of 2012, this is a normal cyclical correction which brings fewer home sales and softer prices," said Phil Soper, president and chief executive of Royal LePage. "Those hoping their predictions of a bursting bubble and cataclysmic drops in home values will come true are out of luck again. We expect to see the number of homes trading hands to begin to rise slightly on a year-over-year basis in the second half of 2013, with price softness continuing until mid-2014, at which point we'll see an emergence from the current cycle."

Prices rising across the country
One strong indicator of the overall solidity of the housing market is that rising prices aren't being driven by just one or two regions. Gains are being seen almost everywhere. Another is that housing starts were higher than expected across the country in May and June, with volume around 200,000 for both months.

"Canada's housing market continued to defy the skeptics in June, not to mention Mother Nature and a bout of labor market unrest," BMO Capital Markets economist Robert Kavcic said in a note to clients.

The combination of stricter regulation, continued demand and consumer confidence appear to have led the Canadian housing market into a soft landing after precipitous rises in home prices led to fears of a housing bubble. This survey by Royal Lepage, which they purport to be the largest, most comprehensive of its kind in Canada, indicates that while not out of the woods quite yet, the housing market finds itself on firmer ground than many had predicted.

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